This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the top of any article.

Apple Leads Company Cash Rise

U.S. corporations amassed record $1.2 trln last year, Moody’s says.

Apple Inc., the world’s most valuable business, led U.S. corporations in amassing a record $1.24 trillion of cash last year as memories of the 2008 credit crisis linger, according to Moody’s Investors Service.

Excluding Apple, with $97.6 billion of cash and no outstanding debt, the figure was relatively unchanged at $1.15 trillion, even as revenue and cash flow from operations rose to a record, Moody’s analysts led by Richard Lane said in a report yesterday. Investment-grade companies graded A3 or higher by Moody’s hold $594.3 billion, or 54 percent, Moody’s said in the report, which tracked cash and liquid investments for non-financials.

“Treasurers have distinct memories of capital markets closing very quickly, and I think companies in general are more focused on controlling their fate from a funding standpoint and part of that means being able to internally fund your investment needs,” Lane said in a telephone interview. Still, “there’s a large and growing use of the cash that these companies generated over the last handful of years.”

The biggest U.S. nonfinancial corporations maintained fortress balance sheets last year as the U.S. economic recovery wavered and European policy makers struggled to contain the sovereign-debt crisis. Companies increased capital expenditures, dividend payments, share buybacks and acquisition spending, even after posting record revenue of $10.4 trillion and cash flow from operations of $1.3 trillion, according to Moody’s.

Companies, including financial borrowers, sold $1.1 trillion of U.S. dollar-denominated debt last year, enticed by record-low borrowing costs spurred by the Federal Reserve leaving interest rates in a target range of zero to 0.25 percent, according to data compiled by Bloomberg.

“Companies have availed themselves of the low interest rates this year or last year to either refinance debt or bring debt into their capital structure for the first time,” Lane said. “Taken together with the economic environment modest as it was, even with increasing levels of cash outlays for research and development, capex, dividends, buybacks and acquisitions, it still resulted in companies growing aggregate levels of cash.”

Moody’s, which tracked those figures through the third quarter of 2011, excluded Cupertino, California-based Apple, Qualcomm Inc. and EMC Corp. from the cash flow data and net debt figures because they don’t rate the companies, Lane said.

Dividend Payments

Capital expenditures, or funds used for activities from repairing a roof to building a new factory, rose to $714 billion, the highest since 2008, accounting for the biggest use of cash from operations, the analysts said in the report. Acquisition spending followed with $329 billion, while dividend payments rose to $284 billion and share buybacks increased to $194 billion.

Spending is likely to be about the same this year, as Moody’s anticipates growth of 2.9 percent in G-20 economies from 3.1 percent last year, according to the report.

Moody’s estimates that companies hold almost $700 billion of the cash, or 57 percent, overseas and are unlikely to pay hefty taxes to repatriate it.

The increased liquidity on company balance sheets is good for credit, because it protects corporations if capital markets are disrupted, according to the report.

Investment-grade corporate bonds have returned 10.2 percent since the end of 2010 as cash holdings have increased, according to Bank of America Merrill Lynch index data. Speculative-grade bonds have gained 9.8 percent in that time.

Treasury & Risk

Treasury & Risk is an online publication and robust website designed to meet the information needs of finance, treasury, and risk management professionals. Our editorial content, delivered through multiple interactive channels, mixes strategic insights from thought leaders with in-depth analysis of best practices, original research projects, and case studies with corporate innovators.